3 min
26-July-2024
Most investors are often conflicted about choosing between Life Insurance Corporation (LIC) policies and Systematic Investment Plans (SIPs) when securing their financial future. Both LIC and SIP have unique merits and benefits, although SIP does emerge as a preferred choice for many.
In this article, we will explore the main differences between LIC and SIP so that you get a comprehensive overview of both. This helps you make an informed decision based on their features, benefits, and potential drawbacks.
A systematic investment plan (SIP) invests a fixed amount at prescribed regular intervals. This is a more disciplined method of investing in mutual funds. SIPs offer the power of compounding; hence, it is best for you if you wish to create wealth over time through regular investments.
On the other hand, the Life Insurance Corporation (LIC), one of India's oldest and largest insurance companies, offers a wide range of insurance products. These include life and health insurance policies and pension plans.
The SIP allows you to invest a fixed amount of money at regular intervals, like monthly or quarterly, into a particular mutual fund scheme. Mutual funds help average out the cost of investment over time and mitigate market volatility. SIPs are also extremely flexible, and this helps if you wish to increase or decrease your regular contribution, pause investment for some time, or redeem your holdings if there is a need. SIPs are ideal for wealth creation and long-term financial planning.
Curious about how much your mutual fund investments can grow over time? Discover potential returns with our SIP return calculator and Lumpsum calculator. Estimate the future value of your investment now!
Keeping in mind life’s uncertainties, Life Insurance Corporation (LIC) offers products that safeguard your—and your family’s futures. LIC usually offers products that combine insurance and investment benefits. If you invest in LIC policies, you have to pay regular premiums in exchange for life cover. This also provides an added death benefit to the beneficiaries of your insurance plan. LIC policies also offer additions such as maturity benefits, bonuses, and tax advantages. Most people consider LIC to be reliable and extensive in coverage.
Several differences between SIPs and LIC include their primary objectives, benefits, and operational structures. Through SIPs, you can accumulate wealth over a long period through regular investments in mutual funds, equities, bonds, and securities. SIPs help generate higher returns due to market participation, and hence, SIPs are best for long-term financial goals like retirement, education, or buying a home.
Conversely, LIC policies offer insurance-based products, providing financial protection to you and your family. LIC policies offer life cover in the event of the policyholder’s demise. Thus, SIPs are directed towards wealth creation, and LIC is focused more on providing stability and financial security.
There are several reasons why investors prefer SIPs over LIC policies, and the main reason is that SIPs are better if you focus on investment growth and flexibility. SIPs offer higher returns over the long term, are easy to liquidate for an urgent need, and can be easily diversified.
Here are a few other reasons investors tend to opt for SIPs over LIC policies.
One of the primary differences between SIP and LIC is what they focus on. SIPs focus mainly on investments that aim to create substantial wealth through the mutual fund market. If you are looking to build a substantial corpus over a prolonged period, an SIP is best suited for you. It leverages the power of compounding and market growth.
LIC, however, offers insurance-oriented products that provide financial protection to you and your family. The product’s primary focus is to offer life cover, ensuring your family is secure in case of an untoward event. The returns on LIC policies (investment part) are generally lower than that of SIPs.
SIP investments offer high liquidity and flexibility. You can start with a small amount and choose to increase or decrease your contribution, pause your investment whenever you wish, or withdraw your funds whenever you need without incurring a hefty penalty. So, if you wish to access your funds in a short or medium time, SIPs are ideal for you.
LIC policies do not offer much liquidity. They are slightly more rigid, requiring you to pay premiums for a fixed period, and earlier withdrawals or surrendering of policy can lead to significant loss of benefits and penalties. By design, LIC policies are meant for long-term commitment, usually spanning 10-30 years. This is not suitable if you are seeking flexible investment options.
Diversification is another advantage that SIPs provide. You get a diverse portfolio of assets in which you can invest—equities, bonds, and other securities. When you diversify your portfolio, you mitigate risks and enhance the returns on all investments. Mutual funds are also managed by fund managers who understand the market and are experienced professionals. They actively monitor and make adjustments to your portfolio to maximise returns.
LIC policies, on the other hand, do not offer this kind of diversification. Your investment is usually limited to fixed-income products, which results in lower returns compared to market-linked investments like mutual funds. LIC policies are also managed more conservatively, focusing on capital preservation rather than growth.
Another key consideration while selecting LIC or SIP investments is transparency.
SIPs are more reliable because of the inherent transparency they offer. When you invest in mutual funds, you receive regular updates on how your portfolio is performing. They also give you regular updates on your fee and other relevant information that allows you to make informed decisions about your investment's future. You are also made aware of your cost structure, which includes the expense ratio and management fees, and this keeps mutual funds transparent.
LIC policies are reliable but lack a similar level of transparency. Charges within LIC products, such as mortality, administrative fees, premium allocation charges, etc., are often not clearly specified. This makes it challenging for investors to understand the intricacies of investing in LIC policies and its cost implications.
SIP and LIC offer tax benefits in different ways. SIP investments, especially ELSS (Equity Linked Savings Schemes), under Section 80C of the Income Tax Act, qualify for tax deductions with a maximum limit of Rs 1.5 lakhs. Even the gains from SIPs earned over a year are taxed at a much lower rate.
LIC policies also provide tax benefits under Section 80C of the Income Tax Act. The taxes are levied on premiums paid, and proceeds from maturity are usually tax-free under Section 10 (10D). Overall, however, the tax benefits of LIC may vary depending on the policy and its tenure.
List of some mutual funds to invest now in India
HDFC Mid-Cap Opportunities Fund
Parag Parikh Flexi Cap Fund
ICICI Pru Bluechip Fund
HDFC Flexi Cap Fund
Nippon India Small Cap Fund
The choice between SIP and LIC depends on your long—term and short—term financial goals. It also depends on how much risk you are willing to take and your investment horizon. If you wish to build wealth over a long period while keeping it flexible and liquidating it whenever needed, then SIP is the right choice. It is also more transparent in a lot of ways. On the other hand, if you are looking for financial protection and guaranteed returns with tax benefits, you should choose an LIC policy.
Essential tools for mutual fund investors
In this article, we will explore the main differences between LIC and SIP so that you get a comprehensive overview of both. This helps you make an informed decision based on their features, benefits, and potential drawbacks.
An overview of SIP and LIC
A systematic investment plan (SIP) invests a fixed amount at prescribed regular intervals. This is a more disciplined method of investing in mutual funds. SIPs offer the power of compounding; hence, it is best for you if you wish to create wealth over time through regular investments.
On the other hand, the Life Insurance Corporation (LIC), one of India's oldest and largest insurance companies, offers a wide range of insurance products. These include life and health insurance policies and pension plans.
Understanding Systematic Investment Plan (SIP)
The SIP allows you to invest a fixed amount of money at regular intervals, like monthly or quarterly, into a particular mutual fund scheme. Mutual funds help average out the cost of investment over time and mitigate market volatility. SIPs are also extremely flexible, and this helps if you wish to increase or decrease your regular contribution, pause investment for some time, or redeem your holdings if there is a need. SIPs are ideal for wealth creation and long-term financial planning.
Curious about how much your mutual fund investments can grow over time? Discover potential returns with our SIP return calculator and Lumpsum calculator. Estimate the future value of your investment now!
Understanding Life Insurance Corporation (LIC)
Keeping in mind life’s uncertainties, Life Insurance Corporation (LIC) offers products that safeguard your—and your family’s futures. LIC usually offers products that combine insurance and investment benefits. If you invest in LIC policies, you have to pay regular premiums in exchange for life cover. This also provides an added death benefit to the beneficiaries of your insurance plan. LIC policies also offer additions such as maturity benefits, bonuses, and tax advantages. Most people consider LIC to be reliable and extensive in coverage.
Differences between SIP vs LIC
Several differences between SIPs and LIC include their primary objectives, benefits, and operational structures. Through SIPs, you can accumulate wealth over a long period through regular investments in mutual funds, equities, bonds, and securities. SIPs help generate higher returns due to market participation, and hence, SIPs are best for long-term financial goals like retirement, education, or buying a home.
Conversely, LIC policies offer insurance-based products, providing financial protection to you and your family. LIC policies offer life cover in the event of the policyholder’s demise. Thus, SIPs are directed towards wealth creation, and LIC is focused more on providing stability and financial security.
Why is SIP considered better than LIC?
There are several reasons why investors prefer SIPs over LIC policies, and the main reason is that SIPs are better if you focus on investment growth and flexibility. SIPs offer higher returns over the long term, are easy to liquidate for an urgent need, and can be easily diversified.
Here are a few other reasons investors tend to opt for SIPs over LIC policies.
Investment focus vs. Insurance focus
One of the primary differences between SIP and LIC is what they focus on. SIPs focus mainly on investments that aim to create substantial wealth through the mutual fund market. If you are looking to build a substantial corpus over a prolonged period, an SIP is best suited for you. It leverages the power of compounding and market growth.
LIC, however, offers insurance-oriented products that provide financial protection to you and your family. The product’s primary focus is to offer life cover, ensuring your family is secure in case of an untoward event. The returns on LIC policies (investment part) are generally lower than that of SIPs.
Liquidity and flexibility
SIP investments offer high liquidity and flexibility. You can start with a small amount and choose to increase or decrease your contribution, pause your investment whenever you wish, or withdraw your funds whenever you need without incurring a hefty penalty. So, if you wish to access your funds in a short or medium time, SIPs are ideal for you.
LIC policies do not offer much liquidity. They are slightly more rigid, requiring you to pay premiums for a fixed period, and earlier withdrawals or surrendering of policy can lead to significant loss of benefits and penalties. By design, LIC policies are meant for long-term commitment, usually spanning 10-30 years. This is not suitable if you are seeking flexible investment options.
Diversification and professional management
Diversification is another advantage that SIPs provide. You get a diverse portfolio of assets in which you can invest—equities, bonds, and other securities. When you diversify your portfolio, you mitigate risks and enhance the returns on all investments. Mutual funds are also managed by fund managers who understand the market and are experienced professionals. They actively monitor and make adjustments to your portfolio to maximise returns.
LIC policies, on the other hand, do not offer this kind of diversification. Your investment is usually limited to fixed-income products, which results in lower returns compared to market-linked investments like mutual funds. LIC policies are also managed more conservatively, focusing on capital preservation rather than growth.
Transparency and costs
Another key consideration while selecting LIC or SIP investments is transparency.
SIPs are more reliable because of the inherent transparency they offer. When you invest in mutual funds, you receive regular updates on how your portfolio is performing. They also give you regular updates on your fee and other relevant information that allows you to make informed decisions about your investment's future. You are also made aware of your cost structure, which includes the expense ratio and management fees, and this keeps mutual funds transparent.
LIC policies are reliable but lack a similar level of transparency. Charges within LIC products, such as mortality, administrative fees, premium allocation charges, etc., are often not clearly specified. This makes it challenging for investors to understand the intricacies of investing in LIC policies and its cost implications.
Tax benefits
SIP and LIC offer tax benefits in different ways. SIP investments, especially ELSS (Equity Linked Savings Schemes), under Section 80C of the Income Tax Act, qualify for tax deductions with a maximum limit of Rs 1.5 lakhs. Even the gains from SIPs earned over a year are taxed at a much lower rate.
LIC policies also provide tax benefits under Section 80C of the Income Tax Act. The taxes are levied on premiums paid, and proceeds from maturity are usually tax-free under Section 10 (10D). Overall, however, the tax benefits of LIC may vary depending on the policy and its tenure.
List of some mutual funds to invest now in India
HDFC Mid-Cap Opportunities Fund
Parag Parikh Flexi Cap Fund
ICICI Pru Bluechip Fund
HDFC Flexi Cap Fund
Nippon India Small Cap Fund
Conclusion
The choice between SIP and LIC depends on your long—term and short—term financial goals. It also depends on how much risk you are willing to take and your investment horizon. If you wish to build wealth over a long period while keeping it flexible and liquidating it whenever needed, then SIP is the right choice. It is also more transparent in a lot of ways. On the other hand, if you are looking for financial protection and guaranteed returns with tax benefits, you should choose an LIC policy.
Essential tools for mutual fund investors
